IDEAS home Printed from https://ideas.repec.org/a/inm/ormnsc/v54y2008i3p415-428.html
   My bibliography  Save this article

Human Capital and Institutional Effects in the Compensation of Information Technology Professionals in the United States

Author

Listed:
  • Sunil Mithas

    (Robert H. Smith School of Business, University of Maryland, College Park, Maryland 20742)

  • M. S. Krishnan

    (Ross School of Business, University of Michigan, Ann Arbor, Michigan 48109)

Abstract

This paper studies the influence of supply-side and demand-side factors on the compensation of information technology (IT) professionals and considers the human capital and institutional explanations. We focus on returns to an MBA and the IT-related experience of IT professionals and use the largest data set of IT professionals that has been compiled to date in the United States to answer our research questions. We find that firms pay a significant premium for an MBA. Although firms value the IT experience of IT professionals, they value an MBA significantly more. The results of this study cast doubt on the belief that IT skills have a large firm-specific component. Although IT experience is valued more than non-IT experience for IT professionals, firms value IT experience at other firms much more than they value firm-specific IT experience. Likewise, contrary to popular perception, we do not find evidence for complementarities between an MBA education and IT experience. Among institutional effects, firms in IT and IT-intensive industries pay significantly more to IT professionals than do other firms, and dot-com firms also paid a significant premium in 1999 and 2000. However, these firms do not value an MBA or firm-specific IT experience any more than other firms. We discuss the implications of these findings for further research, for firms' compensation practices, and for individual IT professionals.

Suggested Citation

  • Sunil Mithas & M. S. Krishnan, 2008. "Human Capital and Institutional Effects in the Compensation of Information Technology Professionals in the United States," Management Science, INFORMS, vol. 54(3), pages 415-428, March.
    • Handle: RePEc:inm:ormnsc:v:54:y:2008:i:3:p:415-428
    DOI: 10.1287/mnsc.1070.0778
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/mnsc.1070.0778
    Download Restriction: no
    File URL: https://libkey.io/10.1287/mnsc.1070.0778?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Lazear, Edward P, 1981. "Agency, Earnings Profiles, Productivity, and Hours Restrictions," American Economic Review, American Economic Association, vol. 71(4), pages 606-620, September.
    2. Angrist, Joshua D. & Krueger, Alan B., 1999. "Empirical strategies in labor economics," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 23, pages 1277-1366, Elsevier.
    3. Alan B. Krueger, 1993. "How Computers Have Changed the Wage Structure: Evidence from Microdata, 1984–1989," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(1), pages 33-60.
    4. David H. Autor & Frank Levy & Richard J. Murnane, 2003. "The skill content of recent technological change: an empirical exploration," Proceedings, Federal Reserve Bank of San Francisco, issue Nov.
    5. Timothy F. Bresnahan & Erik Brynjolfsson & Lorin M. Hitt, 2002. "Information Technology, Workplace Organization, and the Demand for Skilled Labor: Firm-Level Evidence," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(1), pages 339-376.
    6. Andrew Weiss, 1995. "Human Capital vs. Signalling Explanations of Wages," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 133-154, Fall.
    7. Thomas W. Ferratt & Ritu Agarwal & Carol V. Brown & Jo Ellen Moore, 2005. "IT Human Resource Management Configurations and IT Turnover: Theoretical Synthesis and Empirical Analysis," Information Systems Research, INFORMS, vol. 16(3), pages 237-255, September.
    8. O. Ashenfelter & D. Card (ed.), 1999. "Handbook of Labor Economics," Handbook of Labor Economics, Elsevier, edition 1, volume 3, number 3.
    9. Joseph G. Altonji & Robert A. Shakotko, 1987. "Do Wages Rise with Job Seniority?," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 54(3), pages 437-459.
    10. Mark C. Anderson & Rajiv D. Banker & Sury Ravindran, 2000. "Executive Compensation in the Information Technology Industry," Management Science, INFORMS, vol. 46(4), pages 530-547, April.
    11. Brown, Charles & Medoff, James, 1989. "The Employer Size-Wage Effect," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1027-1059, October.
    12. Anandhi S. Bharadwaj & Sundar G. Bharadwaj & Benn R. Konsynski, 1999. "Information Technology Effects on Firm Performance as Measured by Tobin's q," Management Science, INFORMS, vol. 45(7), pages 1008-1024, July.
    13. Milton Harris & Bengt Holmstrom, 1982. "A Theory of Wage Dynamics," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 49(3), pages 315-333.
    14. Francesco Daveri & Mika Maliranta, 2007. "Age, seniority and labour costs: lessons from the Finnish IT revolution [‘Vertical integration and distance to frontier’]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 22(49), pages 118-175.
    15. Levy, Frank & Murnane, Richard J, 1992. "U.S. Earnings Levels and Earnings Inequality: A Review of Recent Trends and Proposed Explanations," Journal of Economic Literature, American Economic Association, vol. 30(3), pages 1333-1381, September.
    16. Soon Ang & Sandra Slaughter & Kok Yee Ng, 2002. "Human Capital and Institutional Determinants of Information Technology Compensation: Modeling Multilevel and Cross-Level Interactions," Management Science, INFORMS, vol. 48(11), pages 1427-1445, November.
    17. Sunil Mithas & Jonathan Whitaker, 2007. "Is the World Flat or Spiky? Information Intensity, Skills, and Global Service Disaggregation," Information Systems Research, INFORMS, vol. 18(3), pages 237-259, September.
    18. Topel, Robert H, 1991. "Specific Capital, Mobility, and Wages: Wages Rise with Job Seniority," Journal of Political Economy, University of Chicago Press, vol. 99(1), pages 145-176, February.
    19. Fairris, D. & Alston, L.J., 1990. "Wages And The Intensity Of Labor Effort: Efficiency Wages Versus Compensating Payments," Department of Economics Working Papers 138, Department of Economics, Williams College.
    20. Joanne Salop & Steven Salop, 1976. "Self-Selection and Turnover in the Labor Market," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 90(4), pages 619-627.
    21. Sherwin Rosen, 1972. "Learning and Experience in the Labor Market," Journal of Human Resources, University of Wisconsin Press, vol. 7(3), pages 326-342.
    22. Sanjeev Dewan & Chung-ki Min, 1997. "The Substitution of Information Technology for Other Factors of Production: A Firm Level Analysis," Management Science, INFORMS, vol. 43(12), pages 1660-1675, December.
    23. Joanne Salop & Steven C. Salop, 1976. "Self-selection and turnover in the labor market," Special Studies Papers 80, Board of Governors of the Federal Reserve System (U.S.).
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sunil Mithas & Henry C. Lucas, Jr., 2010. "Are Foreign IT Workers Cheaper? U.S. Visa Policies and Compensation of Information Technology Professionals," Management Science, INFORMS, vol. 56(5), pages 745-765, May.
    2. Dohmen, Thomas J., 2004. "Performance, seniority, and wages: formal salary systems and individual earnings profiles," Labour Economics, Elsevier, vol. 11(6), pages 741-763, December.
    3. repec:eee:labchp:v:3:y:1999:i:pb:p:2373-2437 is not listed on IDEAS
    4. Jonathan Whitaker & Sunil Mithas & Che-Wei Liu, 2019. "Beauty Is in the Eye of the Beholder: Toward a Contextual Understanding of Compensation of Information Technology Professionals Within and Across Geographies," Information Systems Research, INFORMS, vol. 30(3), pages 892-911, September.
    5. Alberto Bayo-Moriones & Jose E. Galdon-Sanchez & Maia Güell, 2010. "Is seniority-based pay used as a motivational device? Evidence from plant-level data," Research in Labor Economics, in: Jobs, Training, and Worker Well-being, pages 155-187, Emerald Group Publishing Limited.
    6. David N. Margolis, 1996. "Cohort Effects and Returns to Seniority in France," Annals of Economics and Statistics, GENES, issue 41-42, pages 443-464.
    7. Richard Prisinzano, 2000. "Investigation of the Matching Hypothesis," Journal of Sports Economics, , vol. 1(3), pages 277-298, August.
    8. repec:eee:labchp:v:2:y:1986:i:c:p:789-848 is not listed on IDEAS
    9. Buchinsky, Mosche & Kramarz, Francis & Fougère, Denis & Kamionka, Thierry & Beffy, Magali, 2006. "The Returns to Seniority in France (and Why are They Lower than in the United States?)," CEPR Discussion Papers 5486, C.E.P.R. Discussion Papers.
    10. Cecilia ALBERT & Carlos GARCÍA-SERRANO & Virginia HERNANZ, 2010. "On-the-job training in Europe: Determinants and wage returns," International Labour Review, International Labour Organization, vol. 149(3), pages 315-341, September.
    11. Alan B. Krueger, 1987. "Ownership, Agency and Wages: An Examination of the Fast Food Industry," Working Papers 606, Princeton University, Department of Economics, Industrial Relations Section..
    12. Dougherty, Christopher, 2000. "Impact of work experience and training in the current and previous occupations on earnings: micro evidence from the national longitudinal survey of youth," LSE Research Online Documents on Economics 20189, London School of Economics and Political Science, LSE Library.
    13. Neeraj Mittal & Barrie R. Nault, 2009. "Research Note ---Investments in Information Technology: Indirect Effects and Information Technology Intensity," Information Systems Research, INFORMS, vol. 20(1), pages 140-154, March.
    14. Hong W. Tan, 1991. "Technical Change and Human Capital Acquisition in the U.S. and Japanese Labor Markets," NBER Chapters, in: Productivity Growth in Japan and the United States, pages 385-409, National Bureau of Economic Research, Inc.
    15. Alberto Bayo-Moriones, 2001. "Seniority-based pay: is it used as a motivation device?," Working Papers 0103, Departament Empresa, Universitat Autònoma de Barcelona, revised May 2001.
    16. Devereux, Paul J. & Hart, Robert A. & Roberts, J. Elizabeth, 2013. "Job Spells, Employer Spells, and Wage Returns to Tenure," IZA Discussion Papers 7384, Institute of Labor Economics (IZA).
    17. C Dougherty, 2000. "Impact of Work Experience and Training in the Current and Previous Occupations on Earnings: Micro Evidence from the National Longitudinal Survey of Youth," CEP Discussion Papers dp0456, Centre for Economic Performance, LSE.
    18. Munasinghe, Lalith & Reif, Tania & Henriques, Alice, 2008. "Gender gap in wage returns to job tenure and experience," Labour Economics, Elsevier, vol. 15(6), pages 1296-1316, December.
    19. Andrew Weiss, 1995. "Human Capital vs. Signalling Explanations of Wages," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 133-154, Fall.
    20. Keongtae Kim & Sunil Mithas & Jonathan Whitaker & Prasanto K. Roy, 2014. "Research Note —Industry-Specific Human Capital and Wages: Evidence from the Business Process Outsourcing Industry," Information Systems Research, INFORMS, vol. 25(3), pages 618-638, September.
    21. John S. Earle & Klara Z. Sabirianova, 2002. "How Late to Pay? Understanding Wage Arrears in Russia," Journal of Labor Economics, University of Chicago Press, vol. 20(3), pages 661-707, July.
    22. Jean-Marc Robin & Costas Meghir & Christian Dustmann & Jerome Adda, 2013. "Career Progression, Economic Downturns, and Skills," 2013 Meeting Papers 993, Society for Economic Dynamics.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:54:y:2008:i:3:p:415-428. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.